We think Becton, Dickinson (NYSE: BDX) will continue to benefit from recovering demand in the life sciences industry, momentum in the diagnostics and diabetes management areas, and exposure to cancer diagnostics following the December purchase of TriPath.

Becton provides the highest yield [among the medical equipment companies we cover], and the stock offers one of the highest S&P Quality Rankings in the health care sector, reflecting its history of consistent stability and growth in earnings and dividends. We expect fiscal 2008 (ending September) revenues of $7.1 billion, with growth across the medical and diagnostics divisions and biosciences.

In our opinion, the company has significant opportunities in the detection of bacterial (including drug-resistant) infections and cervical cancer. Our fiscal 2009 revenue forecast is $8 billion, our fiscal 2008 earnings estimate is $4.45 a share, and we see fiscal 2009 earnings rising 12% to $5.00. The company remains well positioned to generate earnings growth of about 14% a year over the next three years.

The stock was recently trading at a steep discount to [the medical device companies we cover], at 17.3x our fiscal 2009 earnings forecast and 2.6x our estimated 2009 sales per share. Our 12-month target price of $103 is based on an absolute P/E and forward P/E-to-growth valuation in line with large-cap peers. (It closed below $84 Friday—Editor.)

Shares in United Technologies (NYSE: UTX) fell 13.4% through July 29th. We reiterated our Buy recommendation on July 17th after United Technologies reported second-quarter earnings that beat our estimate. We think results were solid, given the difficult operating environment.

We project continued strength in international markets to support strong results at Otis and in the fire and security segment, and we see moderate growth at Carrier and in aerospace. Despite our expectation of weak commercial construction markets, we see results aided by share repurchases and a weak dollar.

We project sales growth of about 11% in 2008 and 6% in 2009 [and] a 2008 operating profit margin of 13.4%, up from 12.9% in 2007, on improvement in all business segments, driven by increased productivity, pricing, and volume.

For 2009, we expect further operating margin improvement to 14.2% [and] an earnings increase of 15%, to $4.91 a share in 2008. We see 10% [earnings] growth, to $5.40, in 2009. From a longer-term perspective, we believe United Technologies can sustain earnings growth of about 11% over the next three years, as we expect strong global growth trends in aerospace and infrastructure to continue.

Our 12-month target price of $75 is based on a P/E of about 14x our 2009 earnings estimate, slightly below the stock’s ten-year historical average forward P/E of 16x. We believe that current economic conditions and high commodity prices warrant a below-average P/E valuation. (UTX closed below $64 Friday—Editor.)